3.8: Investment Appraisal

Question 1

Define Investment apparaisal

Answer 1

quantitative method to see if investment is attractive

Question 2

Define payback period

Answer 2

estimates length of time for an investment project to pay back its initial cost/investment

Question 3

Give the afvnantages of payback period

Answer 3

Question 4

Define the average rate of return

Answer 4

Measures the annual net return as a percentage of its capital cost

Question 5

Give the advantages of average rate of return

Answer 5

• Shows the profitability if an investment project over a given period of time
• unlike payback period, all cash flows in a business
• easy comparisons with other competing projects for better allocation of investment funds

Question 6

Disadvantages of average rate of return

Answer 6

Question 7

What are the advantages and disadvantages of net present value

Answer 7

Question 8

Why is sustainable finance important?

Answer 8

• re-orient investments towards more sustainable tech + businesses
• sustainable financial growth over the long term
• contribute to the creation of a low-carbon, climate-resilient and circular economy